Diageo executives could be forgiven for pepping up their spirits with a shot of the hard stuff this morning.

The group’s long-running desire to add Mexican tequila brand Jose Cuervo to its stable of premium drinks labels, in deal reported at around $3 billion, was not reciprocated.

Keenly aware that its distribution agreement with the best-selling tequila ends in June 2013, Diageo made it abundantly clear it was looking for an equity stake leading to ownership, but the company showed signs of becoming increasingly exasperated by the protracted talks. The Beckmann family, heirs to the original Cuervo family who started commercial production of tequila in the 19th century, played hardball.

Bernstein analyst Trevor Stirling said convincing a family-owned business with such a rich local and familial heritage was always going to be tricky.

“In all of these negotiations there is a complex mixture of emotion, pride and price. Clearly the balance wasn’t right when it came to Diageo,” said Mr. Stirling.

Still, Shore Capital analyst Phil Carroll said the news, while surprising, highlights Diageo’s “good capital discipline” given that it was prepared to walk away. Mr. Carroll said Diageo is likely to put further investment into Don Julio tequila, for which it also holds a distribution contract…